SVIX ETF

Election-induced volatility may be peaking, making the SVIX ETF a buy as volatility is expected to decline post-election, benefiting from a return to contango. The SVIX ETF is designed to avoid past pitfalls, such as the XIV's Volmageddon, by rebalancing during market hours and holding OTM call options. Comparing SVIX and UVXY, SVIX offers capped losses, but shorting UVXY can be profitable with proper trade sizing despite higher risks.

SVIX is down over 50% from the top due to extreme volatility, while SVXY and SVOL offer less aggressive exposure to VIX futures. SVIX has implemented VIX calls as a hedge, protecting the fund from significant losses as the VIX surges. Buying SVIX now presents a probabilistically sound opportunity with limited downside and potential for gains as volatility is at historic highs.

SVIX ETF has returned 86% in the past year, outperforming the S&P 500. Rising political uncertainty heading into the November elections may lead to increased volatility and tail risks, impacting short-volatility strategies. Furthermore, as former President Trump's election odds rise, investors may have to price in his policies, which could lead to higher inflation, larger deficits, and trade wars.

Recreating Simplify Volatility Premium ETF's strategy using short volatility ETFs is possible and provides us insight into SVOL's potential flaws. ProShares Short VIX Short-Term ETF and Volatility Shares' -1x Short VIX Futures ETF offer investors access to ETF-only portfolio strategies that can provide short volatility exposure. These strategies are unique because they give investors access to gains via capital gains, not current income. The strategies perform wildly different based on varied backtests.

-1x Short VIX Futures ETF is an inverse play that shorts VIX futures and has seen a 120% increase since its launch in April 2022. SVIX is exempt from paying dividends and issues K-1 tax forms, meaning investors will have to pay taxes on the fund's taxable income. SVIX is riskier than another popular ETF, SVOL, as it does not have protective VIX calls as insurance and can potentially go bust if VIX rises too quickly.

The VIX jumped to above 16 following the Federal Reserve's decision to leave its policy rate unchanged. The volatility index could finish at a 1-month high in the coming days, with a potential breakdown in key equity markets. Investors should take advantage of the spike in volatility and consider a trend of lower volatility from mid-October through year-end.